Stochastic indicator for sideways market What is signals showing buy and sell points?


Stochastic indicator for sideways market What is signals showing buy and sell points?
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1/2/2023




stochastics-oscillator-percent-k-formula-alpharithms.jpg


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Stochastic It is a very popular tool. For sideways swinging markets and for those of you who like to play fast, Stochastic is so well-known by George Lane that many people think that Lane invented it. In fact, this indicator has been around for decades. 1960s, on behalf of the Investor Educators Company, under the title of the article Stochastic Process. Part of it explains the Stochastic Process of the price, but there is also an indicator in the end. It appears that it has been done. The title of the article became part of the indicator name, despite the fact that the Stochastic Indicator is not directly related to the theoretical Stochastic Process.


Stochastic is based on the observation that while the price is rising The closing price tends to move higher towards the High or the upper frame of the price more. But during the price drop The closing price will come down close to the Low or the lower frame of the price. More as well Thus, the tool measures the ratio of the closing price rising above the Low to the total spread from High to Low over the last N days, usually 5 days (N = 5).


Let's say that if we calculate that the %K value is 0.38, it means that today's closing price was 38% relative to the 5-day trading session.


The threshold lines that define the Stochastic OB/OS zone are at the 80 and 20 lines respectively. As for the readings of the Stochastic, it is said that the best buy signal will occur when the %D line is between the 10-15 range. And the best sell signal is formed while the %D line is between the 85-90 range.


There are 7 popular methods for considering when to buy or sell:


1. Buy when the Oscillator drops below level 20 and resumes above it, and sells when it retraces above level 80 and reverses above level 80 in a downward direction.


2. Buy when %K cuts %D up and sell when %K cuts %D down. This case can also be separated into 2 sub-cases, %K cuts %D where %K (which is faster) crosses first. (So ​​crossing the left side of the %D line is called Left Crossing) and if %K crosses %D, it's true, but %D (which is slower) crosses the head first (so %K cuts %D on the right side of the line). Line %D is called Right Crossing) in both cases reads same value But the latter is more certain than the former, since the %D is overturned first, indicating that it's a quick change of direction. Sweeter and more stable


3. A divergence can occur when %D is above the 80 line but cannot create a new higher Top while the price continues to follow the Uptrend. It happens while the %D line is below the 20 line and creates a new higher bottom. This is an early warning. Price may run in the direction So hurry up and look for an opportunity to sell (when there is a divergence at the top) or buy (when there is a divergence at the bottom) because soon there may be a reversal. This style is also known as set up.


4. A sharp drop in %K or %D (which George Lane called Hinge) shows that the market is weak. It's a signal to be careful that tomorrow's market may change direction.


5. A rapid (faster) and severe (2-12%) deflection of %K is a warning sign of The market is almost exhausted. The original direction of the price can stand well for no more than 2 days.


6. The %K value ranges from 0 to 100 when % reaches both extremes. It is often a signal to collect (%K=0) or drain (%K=100). The price must close at the highest or the lowest for at least 5 consecutive days (see the formula of %K to understand), and the number of days may need to be more if we use the slower Stochastic.


7. If %K crosses %D and tries to turn around to find %D again, but does not reach it. (or maybe just touching, but not breaking) %D This confirms a clear signal. That it had just intersected a while ago It's a sure sign.


Stochastic Oscillator 02.png



The example that will be presented above is the use of Stochastic to find the timing of entering and exiting with the SET index, which the arrowhead points down. Means buy signal or store more arrow header pointing up Means a sell signal or gradually making short-term profits (depending on the case). Beside the arrow there will be the word Buy or Sell, which will be seen that some When there is a moment to buy or sell more than 1 point, the question (that shouldn't be a question) is why there are many points. The answer is at The principle that will only be used to find a cutting rhythm (several items that have just been mentioned) because some people only see cutting up (but there is no confirmation from another stroke), then go ahead and be careful that you will find the stump. Because of the above this pointer quite fast moving Therefore, there may be a false signal, so some people use the line crossing rhythm. Gradually buy or sell stocks. It is similar to signaling in terms of moving averages.




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